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Question 3 Milestone Enterprises needs a cash budget for December 2020
Question 3
Milestone Enterprises needs a cash budget for December 2020. The cash balance at the beginning of December is expected to be $ 18,000. The sales for October, November and December are expected to be as follows:
|
Information |
October ($) |
November ($) |
December ($) |
|
Cash Sales |
26,000 |
21,000 |
30,000 |
|
Sales on Account (Credit Sales) |
80,000 |
120,000 |
160,000 |
|
Total Sales |
106,000 |
141,000 |
190,000 |
Sales on account are collected over a three-month period in the following rates:
20% in the month of sale,
50% in the month following sale
30 % in the second month following sale
Additional information includes:
(a) Purchases of inventory will total $ 100,000 for December; 20% will be paid for in December. Accounts payable from November's inventory purchases is $ 64,000, all of which will be paid in December.
(b) Selling and administrative expenses are budgeted at $ 52,000 for December; of which $ 16,000 is for depreciation, thus total expenses payable is $ 36,000 (52,000 – 16,000)
(c) An Equipment costing $ 72,000 will be purchased for cash during December, and other miscellaneous cash expenses of $ 12,000 will be paid during December.
Required
(a) Prepare a schedule of cash collections (cash and credit collections) for December (15 marks)
(b) Prepare a Cash Budget for the month of December (10 marks)
(15 + 10 = 25 marks)
Expert Solution
Question 3
(a) MILESTONE ENTERPRISES
SCHEDULE FOR CASH COLLECTIONS FOR DECEMBER 2020
| PARTICULARS | WORKING | AMOUNT(IN $) |
|
1.CASH SALES FOR DECEMBER |
GIVEN | 30,000 |
|
2.CASH COLLECTION FOR CREDIT SALE |
WORKING NOTE 1 | 116,000 |
| TOTAL CASH COLLECTIONS(1+2) | 146,000 |
WORKING NOTE 1 CASH COLLECTION FOR CREDIT SALE IN DECEMBER
| PARTICULARS | WORKING | AMOUNT(IN $) |
| 1.CASH COLLECTION FOR OCTOBER SALE |
30%*80,000 (30% WILL BE RECOVERED IN THE SECOND MONTH OF SALE) |
24,000 |
| 2.CASH COLLECTION FOR NOVEMBER SALE |
50%*120,000 (50% WILL BE RECOVERED IN THE NEXT MONTH FOLLOWING SALE) |
60,000 |
| 3.CASH COLLECTION FOR DECEMBER SALE |
20%*160,000 (20% WILL BE RECOVERED IN THE MONTH OF SALE) |
32,000 |
| TOTAL(1+2+3) | 116,000 |
(b) MILESTONE ENTERPRISES
CASH BUDGET FOR DECEMBER 2020
| PARTICULARS | WORKING | AMOUNT(IN $) |
| OPENING CASH BALANCE | GIVEN | 18,000 |
| ADD: TOTAL RECEIPTS | ||
|
GIVEN | 30,000 |
|
WORKING NOTE1 (ABOVE) |
116,000 |
| LESS: TOTAL PAYMENTS | ||
|
20%*100,000 | (20,000) |
|
GIVEN | (64,000) |
|
(52,000-16,000) | (36,000) |
|
GIVEN | (72,000) |
|
GIVEN | (12,000) |
| CASH DEFICIT | (40,000) |
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